Self-Enforcing Agreements under Unequal Nationally Determined Contributions

33 Pages Posted: 2 Jun 2017

See all articles by Emilson Delfino Silva

Emilson Delfino Silva

University of Alberta - Department of Marketing, Business Economics & Law

Multiple version iconThere are 3 versions of this paper

Date Written: May 31, 2017

Abstract

The Paris Agreement builds on Intended Nationally Determined Contributions (INDCs) submitted by most participating nations. The INDCs vary across nations, since national circumstances differ, including national incomes and damages. The INDCs follow a bottom-up approach, whereby nations submit their plans of actions in a Nash-like form (i.e., taking the other nations’ plans as given). We build a model with normal goods and an unequal world income distribution to consider the endogenous formation and stability of an international environmental agreement (IEA) under the bottom-up approach. Nations provide carbon abatement and produce R&D efforts that promote improvements in environmental efficiency of their outputs. Nations share R&D efforts and enjoy R&D spillovers if they join an IEA. Nonmembers do not enjoy R&D spillovers. Global carbon abatement rises as the IEA expands in size due to the R&D spillovers. We show that the Grand Coalition is stable under a nearly perfectly equitable income distribution, where all nations make positive carbon abatement and R&D contributions. We also consider a more realistic world income distribution, in which some nations lack sufficient income to provide carbon abatement and R&D. In this case, the stable coalition contains all (wealthier) nations that make positive abatement and R&D contributions. For a very unequal world income distribution, not even a bilateral IEA, with the two richest nations in the world, is stable. The stable IEAs provide too little carbon abatement relative to the first best.

Keywords: International Environmental Agreements; Self-Enforcing; Nationally Determined Contributions; R&D Sharing

JEL Classification: D74; H41; Q54; Q55

Suggested Citation

Delfino Silva, Emilson, Self-Enforcing Agreements under Unequal Nationally Determined Contributions (May 31, 2017). University of Alberta School of Business Research Paper No. 2017-705. Available at SSRN: https://ssrn.com/abstract=2978774 or http://dx.doi.org/10.2139/ssrn.2978774

Emilson Delfino Silva (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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